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Left In Lowell » Blog Archive » The Economics of Casinos

Left In Lowell

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April 8, 2010

The Economics of Casinos

by at 12:41 pm.

This is just about the best comment on the giant sucking sound casinos make in an economy I’ve ever seen. NoPolitician lays it all out.

I’m not against casinos out of any moral concerns. I’m against them for economic reasons.

My interpretation of an economy is that it is basically the movement of money between parties in exchange for goods and services. I buy something from you, you buy something from me. An economy gets bigger as more players enter it, as more money enters, and as more transactions occur. I think it is a zero-sum game to a certain extent, but that when more transactions happen, money circulates faster, and that is how economies can grow.

Because I think that an economy works better when more money is circulating, I believe that when some players in an economy just accumulate money (i.e. insanely rich people), that makes the economy weaker, particularly because those people are not often investing in the local economy, so they are taking money from the local economy. I believe that a certain accumulation of money is necessary (this is when money becomes capital, and capital is necessary in an economy), but I think that these days capital is more fickle particularly when local economies are concerned. Capital would rather invest in Indonesia than locally just to get one more basis point.

I see casinos as basically taking a lot of money out of our local economy and sending it elsewhere, usually out-of-state. I don’t think that will be good for our local economy because it quickly converts free-flowing money from our local economy into remote capital.

But it gets even better here (honestly, I am quoting most of the comment, which I normally never do, but it’s that good):

I also see casinos distorting the economy. There was a good article a couple of weeks ago about how casinos affect local performing arts venues. Casinos are able to pay more for artists, and subsequently charge patrons less for shows. Why? Because they aren’t concerned with the shows making a stand-alone profit, the shows are designed to get customers for the casinos. That means stand-alone venues can’t compete, and go out of business. I can attest that in Springfield, since Foxwoods and Mohegan Sun were built, the concert scene has completely dried up. But not down there — plenty of artists playing the casinos. Meanwhile our downtown is dead, our local economy based on downtown entertainment has been killed.

I don’t think casinos do much for the local economy because casinos are primarily concerned with keeping the revenue on-site, and with keeping people as close to the action. They build their own hotels, they build their own restaurants, they even build their own retail. Their primary purpose is to get as much money out of a consumer as possible. Hey, that’s capitalism, but casinos don’t necessarily play fair. They use psychologists to figure out how to get you to spend every last dollar, and then some, on their games.

I don’t see any casinos in this country that have a ring of prosperity around them. I haven’t heard of casinos being the economic engine anywhere.

I think that a lot of people who would frequent these casinos are probably spending a good chunk of money on our state lottery. That money funds local aid. I think that local aid would decrease if those people had more access to casinos. Are we prepared for that?

I understand the argument that Massachusetts residents are spending money on casinos now. However, since the groups that are backing these casinos are involved with the CT casinos, that is a clear sign that they expect more — probably a lot more business from MA residents if casinos are built here. They’re not going to spend billions simply to cannibalize customers from their existing casinos.

All that is why I don’t buy the argument from casino-backers that casinos would be good for our economy. I primarily see money being taken out of our economy. I see unfair competition for local businesses. I see irrational decisions being made by consumers based on psychological warfare by the casinos. I see a distortion of our economy.

A lot of people decry taxes as “taking money from the economy” — but taxes are almost always spent locally, so that’s not really true. And taxes often improve infrastructure, and fund things that keep the economy moving forward.

Casinos will tax the economy without those benefits. They will send money elsewhere, they will de-fund local aid, and they will leave people with less money to spend on the real economy.

I appreciate that we could be in a “cat’s out of the bag” situation since other states have casinos. I don’t have an answer for that. I just have a big problem with joining the race to the bottom though.

If you’re for a strong economy, then we shouldn’t have casinos. That’s about it in a nutshell. Casinos weaken economies. Take a look around at the depressed areas around the casinos of other states. The loss of small businesses and entertainment venues. There are a finite dollars being spent in our economy, and casinos suck them up and move them far, far away, with very little to show for it other than a state addicted to what winds up becoming (over the years) to be a paltry revenue stream that is quickly eaten up mitigating the socioeconomic problems they create. For instance, the crime rate of embezzlement:

No other state that reported 40 or more embezzlements in 1992 has had a higher percentage increase than Connecticut. The percentage increase in Connecticut from 1992 to 2007 is nearly 400 percent . . . nearly 10 times that of the national average. Our research shows that many of those who stole from their employer used either part or all of the money to gamble at the two Indian casinos.

Kevin O’Connor was the state’s US Attorney from 2002 to April 2007. . . O’Connor said he noticed a spike in embezzlements shortly after he took office. “The FBI is spending a considerable amount of time on these cases,” O’Connor said, noting he became so concerned
over the number of cases that he instructed his press officer to indicate in press releases whether gambling played a role in the embezzlement.

“It wasn’t just embezzlements,” O’Connor said of the casino-related crime that was prosecuted on the federal level. “It was fraud, bank robberies and thefts as well. And over and over, we would learn that they were done to feed a gambling habit.”

No one knows better than Lawrence Tytla that embezzlements have been on the rise. He is the Supervisory Assistant State’s Attorney for New London County. Tytla first started with the office in 1988. The motive then, he noted, for embezzlements was to feed a drug habit; today it is to feed a gambling habit.

Tytla said he is stunned by the type of people committing the embezzlements in southeastern Connecticut. “These are people that almost always never had a criminal record,” he noted. “They are upstanding citizens who gained the trust of their employers, who never suspected that they could have been victimized this way. They think they are the only ones this has happened to. What’s astonishing is the magnitude of the embezzlements and how long they go undetected.”

Elsewhere in that same report can be found these statistics:

“Our survey indicates a probable pathological gambling prevalence rate of 1.2 percent . . . to 1.5 percent . . . the baseline estimate of for gambling losses is $13,586 per pathological gambler. It is a figure that has been used to determine the financial costs in several other gambling-impact studies. The losses of the pathological gamblers could therefore range from $435 million to $543 million.”

It should be noted that the numbers in Massachusetts are expected to be roughly twice the numbers from Connecticut due to Massachusetts’ significantly larger population base. That would mean projected losses of roughly $800 million to $1.0 billion dollars - and that’s just from embezzlements!

—From a United to Stop Slots in Massachusetts email, citing numbers from this study from the state of Connecticut: “Gambling in Connecticut: Analyzing the Economic and Social Impacts.”

The email states:

…the company who prepared the study [for CT], Spectrum Gaming Group of Linwood, New Jersey, is the exact same company who prepared a separate gambling viability report on casinos and slots for Massachusetts that has been used to justify pending legislation allowing predatory gambling, slots/casinos in the Commonwealth.

This alarming statistic was nowhere to be found within the original 301-page Massachusetts report. Nor was it contained in the updated tax-funded Massachusetts gambling benefit report released last week.

But we don’t have time for a real, independent study of the downsides of allowing casinos? Just the supposed upsides?

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